According to Prime Database, Indian companies spent 9,309 crore on CSR projects in 2015-16, which was 163 crore more than the amount required by law, and 703 crore more than the previous year. The problem is that reported expenditure on CSR projects is not a good metric of societal welfare. These numbers overstate the effect of the law.

Why the CSR law is not a success – Live Mint 13th December 2016

The Companies Act 2013 requires large (above a specified threshold level) firms to spend 2% of their net profits on corporate social responsibility (CSR) projects. This law came into effect in April 2014. The results on CSR expenditures by firms in the fiscal year 2015-16 were released recently. It is certainly true that Indian firms collectively are more than complying with the CSR law. According to Prime Database, Indian companies spent 9,309 crores on CSR projects in 2015-16, which was 163 crore more than the amount required by law, and 703 crore more than the previous year.

The general reaction in the Indian press has been positive and suggests that the CSR law has been a success. However, the CSR law is only apparently successful, and in reality is harmful.

The problem is that reported expenditure on CSR projects is not a good metric of societal welfare. These numbers overstate the effect of the law. It is not clear whether firms have really increased their CSR spending after the law compared to what they were spending voluntarily before the law, because CSR spending was not well reported historically. There is some evidence that while firms that were initially spending less than 2% increased their CSR activity, but those that were initially spending more than 2% reduced their CSR expenditure. Another possibility is that firms spent money on CSR activities that also lead to increasing firm profits, such as inculcating goodwill and good public relations. There is evidence indicating CSR spending leads to brand building and employee engagement. In that case, firms would have carried out these activities with or without the law.

For more details, refer to the following links

http://www.livemint.com/Opinion/1wIQwFPRyRckBMg5IugW1K/Why-the-CSR-law-is-not-a-success.html

The Companies Act 2013 requires large (above a specified threshold level) firms to spend 2% of their net profits on corporate social responsibility (CSR) projects. This law came into effect in April 2014. The results on CSR expenditures by firms in the fiscal year 2015-16 were released recently. It is certainly true that Indian firms collectively are more than complying with the CSR law. According to Prime Database, Indian companies spent 9,309 crores on CSR projects in 2015-16, which was 163 crore more than the amount required by law, and 703 crore more than the previous year.

The general reaction in the Indian press has been positive and suggests that the CSR law has been a success. However, the CSR law is only apparently successful, and in reality is harmful.

The problem is that reported expenditure on CSR projects is not a good metric of societal welfare. These numbers overstate the effect of the law. It is not clear whether firms have really increased their CSR spending after the law compared to what they were spending voluntarily before the law, because CSR spending was not well reported historically. There is some evidence that while firms that were initially spending less than 2% increased their CSR activity, but those that were initially spending more than 2% reduced their CSR expenditure. Another possibility is that firms spent money on CSR activities that also lead to increasing firm profits, such as inculcating goodwill and good public relations. There is evidence indicating CSR spending leads to brand building and employee engagement. In that case, firms would have carried out these activities with or without the law.

For more details, refer to the following links

http://www.livemint.com/Opinion/1wIQwFPRyRckBMg5IugW1K/Why-the-CSR-law-is-not-a-success.html